A late ps: petrol prices may rise by 3p per litre, due to the production freeze caused by the cracked Forties North Sea oil pipe, and the serious explosion in Austria today.

My colleague Adam Vaughan explains;

The RAC has warned British drivers they could be paying 3p a litre more for fuel by Christmas after the shutdown of a major North Sea pipeline hit oil prices.

The warning came as an explosion at a key European gas hub in Austria and disruption to supplies in Norway pushed gas prices to multi-year highs.

The price of unleaded could climb to 123.76p a litre and diesel to 126.21p a litre, the highest since November 2014, the RAC said....

Bad news for motorists, as this puts extra pressure on the cost of living.

Goodnight!

NIESR’s head of UK macroeconomic forecasting, Amit Kara, fears that British workers’ pay packets will remain under the cosh for some time:

“We expect inflation to peak at current levels in the final quarter of this year before dropping back to the target rate by mid-2019. The Bank will in our view raise the policy rate every six months until the policy rate reaches 2% by mid-2021, with the next increase in May.

Wage growth is likely to remain under pressure as a result”.

The energy market has been rocked by a major explosion at Austria’s main gas line.

One person has reportedly been killed in the blast, which occurred around 8.45am local time, with 18 people injured. The pipeline supplies gas to Italy, which has been forced to declare a state of emergency:

This comes a day after a crack forced the closure of a major oil pipeline from the North Sea (as covered earlier this morning).

This supply disruption has sent the cost of natural gas for delivery today into Britain soaring , by up to 40%:

Just in: Inflation may be building in America too.

Producer prices (what companies charge for their wares) rose by 0.4% last month, faster than expected. On an annual bases, producer prices are up by over 3%.

While inflation has risen, house price inflation in the UK has dipped slightly - due to a slowdown in London.

The average house price increased by 4.5% in the year to October 2017, down from 4.8% in September 2017.

In London, prices were only 2.1% higher than a year ago.

Rising inflation is a severe blow to families who rely on state benefits.

Many of those benefits are currently frozen under the government’s austerity programme, which means they are shrinking in real terms.

Ashwin Kumar, chief economist at the Joseph Rowntree Foundation, say the government should rethink its policy:

“Falling wages and frozen benefits mean that many families will struggle to find the money to keep up with rising inflation. Today’s update means that a family of four on the minimum wage will be £500 worse off every year due to the benefit freeze.

“The cost of basic essentials is rising even faster than the headline inflation figure: food is up 4.1% and energy 6.4% in the last year. This means people on lower incomes are being hit particularly hard as they need to use more of their income to cover these costs.

“The benefits freeze was a policy introduced at a time of zero inflation. The Government should help people in poverty by ending the freeze and keeping benefits in line with the rising cost of living.”

Mark Carney needs to give his letter to Philip Hammond plenty of attention, as parliament’s Treasury committee are planning to grill him about it next year.

Nicky Morgan MP, Chair of the Treasury Committee, says:

“Inflation rising faster than earnings is squeezing household finances, driven in part by rising prices for household essentials such as food and transport.

“The Governor will now have to write to the Chancellor to explain why the Bank has missed its inflation target by more than one per cent, and what action the MPC intends to take.

“The Treasury Committee will scrutinise that letter in its regular hearings with the Bank.”

The TUC have created a useful, and frankly depressing, chart showing how food prices have risen over the last year.

Peter Dowd MP, Labour’s Shadow Chief Secretary to the Treasury, argues the Conservative government must take the blame for allowing wage growth to lag behind inflation.

Dows says:

“Today’s rise in inflation to its highest level in over five-and-half years is extremely concerning, and once again reveals that after seven years of Tory economic failure, this Government has no answers to the problem of wages continuing to fail to keep up with prices.

“We shouldn’t forget that there will be millions of working families who will be struggling this Christmas already as a direct result of government policies such as the benefits freeze and the public sector pay cap; this is a further reminder of just how bad this double whammy of rising prices and Tory austerity policies will be this month for them.

“The next Labour government will ensure working people’s living standards are protected with a Real Living Wage of £10 per hour, ending the public sector pay cap, and by building a high wage, high skill economy that works for the many, not the few.”

The UK’s financial secretary to the Treasury, Mel Stride, says he understands that Britons are suffering from rising inflation:

“Inflation is expected to fall over the coming year, but I recognise families are feeling a squeeze now.

We are determined to help, which is why the Autumn Budget cut income tax, boosted basic pay by more than inflation and froze alcohol and fuel duties”

Britain’s inflation squeeze may actually intensify over the festive period, warns Ben Edwards, Portfolio Manager at investment giant BlackRock:

UK households may have to continue to endure higher costs in some segments over Christmas particularly as food retailers continue to pass on higher producer prices and airfares take their normal seasonal trip north.

But Edwards also predicts that inflation will ‘drift lower” in 2018.

That’s partly because the impact of the weak pound will eventually drop out of the data (as inflation compares today’s prices against the same items a year ago).

Digging into the inflation report, you can see that the cost of bread has jumped by 5.3% in the last year.

Butter is up by over 21% - enough to make any late-breakfasting readers splutter over their toast.

Imported lamb has risen by over 12% in the last year (compared to just 3.2% for home-reared animals), and fresh fish is 11.2% more expensive than in November 2016.

Coffee was 10% more expensive than a year ago, but tea prices were virtually flat, according to the ONS’s data (online here).

Here’s more detail (the final column shows the change in pricing over the last 12 months; alongside is the monthly change)

This latest rise in inflation shows that Britain is still suffering from the plunge in the pound after the Brexit vote in June 2016.

As Maike Currie of Fidelity puts it:

Just two years ago, Mark Carney was writing his fourth letter to former Chancellor, George Osborne to explain why prices were in deflationary territory.

But in the past year, British households have suffered an ongoing pinch on their spending power since sterling’s Brexit-induced slum

Channel 4’s Siobhan Kennedy also blames the weak pound for driving up the cost of imports such as oil.

The jump in the cost of food and fuel in the last year will hit the eldest and most vulnerable particularly hard, says Maike Currie, investment director for personal investing at Fidelity International.

The Bank of England won’t be happy to see inflation over 3% either:

The jump in UK inflation in November is a nasty shock for City economists, who had hoped that it might have peaked in October (at 3.0%).

Aberdeen Standard Investments Chief Economist Lucy O’Carroll explains:

“This is slightly higher than expected and will prompt a letter from Bank of England Governor Carney to the Chancellor, explaining why inflation has overshot its target by this margin and what the Bank will do about it.

“It’s quite possible that inflation is now close to its peak. But some of the latest surveys suggest that service sector costs and prices are rising. Given how dominant services are in the economy, this could feed through to inflation overall.

So this could encourage the Bank of England to consider raising interest rates (they’re currently just 0.5%).

O’Carroll adds:

The Bank of England has a tricky tightrope to walk. Too much inflation could threaten the Bank’s credibility and therefore its grip on the economy. But they need to keep consumer spending, the engine of the UK economy, chugging along too.

If inflation keeps creeping up, or remains elevated, then the chances of the engine sputtering rise incrementally.”

Britain’s inflation rate has been driven up to 3.1% by transport costs, food, and recreational spending (such as computer games):

This charts shows the details:

Talk about bad timing, eh?

Ineos only took ownership of the Forties pipeline from BP in late October. The discovery a crack in the pipe must be a nasty shock to the company’s management, and might trigger a heated conversation with BP HQ. Still, buyer beware and all that....

The cost of wholesale gas in the UK has jumped by almost 6% this morning, reports Reuters:

• BRITISH WHOLESALE WITHIN-DAY GAS PRICE NOW RISING 5.9 PERCENT TO 72.00 PENCE PER THERM
  

The impact of the Forties pipeline shutdown is ‘rippling through’ world energy markets, says Bloomberg.

That’s because the North Sea is a major oil supplier, and also because Brent crude is a key benchmark of energy prices.

They explain:

The U.K. link is critical because flows through it make up the single largest constituent part of so-called Dated Brent crude, which helps settle more than half the world’s physical oil prices. It feeds the Hound Point export terminal near Edinburgh in Scotland and handles supplies from over 80 fields, and the shutdown forced Apache Corp.to suspend operations at its nearby Forties asset.

“It’s more than just a supply disruption because it’s more significant as a price maker,” said Olivier Jakob, an analyst at Petromatrix GmbH who’s based near Zug in Switzerland. “There’s one thing which is the volume of oil which is lost, but it’s also that it’s a key price benchmark.”

Reuters’ Alex Lawler reckons this is the first complete shutdown of the Forties pipe in around six years:

But it could be even worse, points out Mike van Dulken of Accendo Markets

The UK government has insisted that oil supplies won’t be affected by the Forties pipeline shutdown.

A spokeswoman said:

“There is no security of supply issue for fuel or gas supplies as a result of the repairs needed to the Forties pipeline.

The government will continue to liaise with industry operators to monitor the situation to ensure repairs are undertaken as quickly as possible.”

But Martin Baccardax of financial news site The Street isn’t convinced:

The gap between Brent crude and US oil (WTI) has now widened to over $7 per barrel, a level last seen in August 2015, say analysts.

This shows that “supply disruptions can no longer be ignored in tight markets”, says Hussein Sayed, Chief Market Strategist at FXTM.

Here’s energy correspondent Adam Vaughan on the Forties pipeline outage

Fiona Legate, a senior analyst at Wood Mackenzie, said the shutdown of the Forties Pipeline System, even if only temporarily, would have wide-reaching implications the UK oil and gas industry. Apache, a Texas-based company with operations in the North Sea, said it had ceased production as a result.

The Health and Safety Executive said: “We continue to monitor the situation, as we have since we were made aware of the issues with the pipeline.”

The shutdown will be a serious blow for Ineos, which only completed its £200m purchase of the pipeline system from BP at the end of October. The company had said that it was now the only UK company with refinery and petrochemical assets that were integrated in the North Sea, and would serve as a platform for more investments in the region.